Indonesia Still Keen on Japanese Soft Loans

ndonesian central bank overhauled the provisions on export proceeds and foreign exchange for imports as stipulated in Bank Indonesia Regulation (PBI) Number 22 of 2020 - Photo: Privacy

JAKARTA (TheInsiderStories) – As Indonesia is intensively carrying out development to advance its economy, it urgently needs major capital formation for infrastructure required to facilitate development in various economic sectors across the country.

In developing such a grandly-planned infrastructure, the Government of Indonesia estimates it will need a total of Rp5,000 trillion rupiah (about US$360.5 billion).

This is however far from the government’s own capabilities to finance such projects. It thus needs to cooperate with the private sector and invite in foreign investors.

‘It is impossible to source funding of such magnitude from within the country. This means that we need to attract foreign investors,’ said Minister of Finance Sri Mulyani on November 15.

Indonesia is therefore now actively seeking investors from overseas. One of the foreign countries considered as a potential investor in Indonesia is Japan.

In 2018, for example, Japan will again be considered a potential source of foreign direct investment. Robert Pakpahan, Director General of Budget Financing and Risk Management at the Ministry of Finance, stated that Japan will become a source of funds with non-binding conditions.

He revealed that the Japanese government offered loans with soft requirements and low interest rates. With Japan, Indonesia will cooperate in the development of infrastructure such as seaports, airports, railway tracks and other projects.

‘The Japanese investors have the character that requires the harmonious cooperation of all parties – both central and regional governments,’ he said.

Recently, the Japan International Cooperation Agency (JICA) signed loan agreements with the Indonesian government to provide loans of up to a total 127,215 billion yen (or approximately US$1.1 billion) for two projects.

The loans are allocated for Patimban Port Development Project: 118,906 billion yen, and development of a World Class University at Universitas Gadjah Mada: 8,309 billion yen.

With the consideration that port development will mainly use Japanese technology, the loan took advantage of the Special Terms of Economic Partnership (STEP) from JICA. The loan is set at a fixed interest rate of 0.1 per cent per year with a 40-year maturity period, including a 12-year grace period and 28 years for repayment.

The Japanese government has been extending soft loans to Indonesia since 1958. Up to October 2017, before the two loan agreements were signed, the Government of Indonesia already has 31 on-going project loans from the government of Japan, amounting to 565.75 billion yen, equivalent with US$5.1 billion

Chief JICA Office Representative for Indonesia Naoki Ando mentioned that in recent years Indonesian domestic consumption and private investment have powered its economy, maintaining stable growth.

He said the loan agreements will support the following two projects in developing an international port to expand logistics functionality and enhance connectivity, strengthening an institution of higher education, issues focused on in the National Medium-Term Development Plan (RPJMN) of 2015–2019 from the Government of Indonesia.

‘Inhibiting private investment, challenges include delays in infrastructure development, inefficient goods distribution and an insufficient number of human resources for industry. Toward further economic growth, it is essential that these issues be solved and the investment environment be improved,’ he said.

Written by Yosi Winosa, email: